Gov't reaches agreement to allow airline merger

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The Justice Department says it has reached an agreement to allow American Airlines and US Airways to merge, creating the world's biggest airline.

The agreement requires the airlines to scale back the size of the merger at Washington's Reagan National Airport and in other big cities.

In August, the government sued to block the merger, saying it would restrict competition and drive up prices for consumers on hundreds of routes around the country.

The airlines have said their deal would increase competition by creating another big competitor to United Airlines and Delta Air Lines, which grew through recent mergers.

The settlement reached Tuesday would require approval by a federal judge in Washington and eliminate the need for a trial that had been set to begin Nov. 25. It would require American and US Airways to give up takeoff and landing rights or slots at Reagan National and New York's LaGuardia Airport and gates at airports in Boston, Chicago, Los Angeles, Dallas and Miami to low-cost carriers.

Attorney General Eric Holder said the agreement would ensure more competition on nonstop and connecting routes throughout the country. The department said the divestitures were the largest ever for an airline merger.

The companies expect to complete the merger in December. As soon as the deal closes, the airlines will coordinate prices and schedules as if they were one, but combining the fleets will take months or years, executives said.

Six states had joined the lawsuit to block the merger, fearing the loss of flights and jobs at their airports. The Justice Department said that American and US Airways agreed to maintain for three years the US Airways hubs in Charlotte, Philadelphia and Phoenix and American hubs at Miami, Chicago's O'Hare Airport, New York's John F. Kennedy International Airport and Los Angeles International.

If the settlement is accepted, the combined American and US Airways would operate 44 fewer daily departures at Reagan National and 12 fewer at LaGuardia than they would have without concessions. But the new American will still be the biggest carrier at Reagan National. The two airlines run about 290 takeoffs a day at Reagan National — about two-thirds of the airport's total — and 175 at LaGuardia now.

Standard & Poor's analyst Jim Corridore said the airlines gave up more than he expected but the settlement shouldn't change the financial benefits of the mergerto the companies.

The companies and some airline industry experts said the Justice Department had a weak case, especially after allowing four big airline mergers in the past eight years with few conditions. American and US Airways, however, were not willing to bet their fate on the decision of a federal judge.

"We didn't think we should have to give up anything," Doug Parker, the US Airways CEO who will lead the new company, said in an interview. "The lawsuit should not have been filed, but once it was, there is some risk in going all the way to trial. This settlement was worth doing rather than taking on that risk."

Shares of US Airways Group Inc. rose 3 cents to $23.30. Based on Monday's closing price, the deal with American Airlines is worth more than $16 billion. Shares of American parent AMR Corp., which trade over the counter only, jumped 18 percent to $11.21.

When it sued in August, the Justice Department was joined by Texas, where American is based, and Arizona, home to US Airways. They said the deal would hurt consumers in their states.

But six weeks later, the Texas attorney general, a Republican who is running for governor next year, had a change of heart and pulled out of the lawsuit. Then the attorney general of Florida met with American CEO Tom Horton and expressed hope for a settlement, adding to the sense of crumbling opposition to the merger. Dozens of Democratic members of Congress implored the Obama administration to drop the lawsuit.

Last week, Holder confirmed that settlement talks were underway and added that he hoped a trial could be avoided. He seemed to set wide parameters on a possible compromise.